Award of 1100 megawatts Kohala project to CWE: ECC sets aside Cabinet Division, Wapda observations

The Economic Co-ordination Committee (ECC) of the Cabinet has set aside the observations of Cabinet Division and Water and Power Development Authority (Wapda) for the award of 1100 mw Kohala Hydropower Project to China International Water and Electrical Corporation (CWE) of China in violation of PPRA rules.
Sources in PPIB told Business Recorder that the ECC in its meeting on October 15, 2010, on a summary submitted by the Ministry of Water and Power on "development of 1100 mw Kohala Hydropower Project" in Azad Kashmir, had constituted a committee headed by the Minister for Water and Power to: (a) examine all matters related to 1100 mw project and a way forward for its further implementation, keeping in view the commitments of Chinese firm; (b) streamline the development and implementation of hydropower projects in private sector and attract foreign investment; (c) suggest a simplified mechanism for fast track induction of cheaper hydropower in the national grid.
In pursuance of the directions of the recommendations of the committee, a reference regarding applicability of PPRA Rules 2004 was sent to the Cabinet and Law Divisions. The Law Division upheld the viewpoint of PPIB that PPRA Rules were not applicable to the project, while the Cabinet Division opined that PPRA Rules 2004 are applicable.
It was further revealed that on a reference from the PPIB regarding the first right of refusal, the sponsor of the project, CWE, had informed on January 22, 2011 that the Memorandum of Understanding (MoU), enabling foreign private investment in the project had been accorded by GoP to CWE and that in the event of any re-determination of sponsors for the project through International Competitive Bidding (ICB), the sponsor is likely to be grieved and suffer consequential losses. Therefore, sponsor strongly stressed that in the light of the commitments made by the GoP under the MoU, the project be approved for further implementation at the earliest through CWE.
The meeting was further informed that according to Wapda, its request for development of the project in public sector was approved by the Government of AJK in December 2005 and subsequently by the Ecnec on 23rd August. Accordingly, Wapda completed feasibility studies of the project, detailed engineering design and tender documents by November, 2009 out of PSDP.
The Wapda further contended that approval of Ecnec was based on approval of Government of AJK and there was a legal requirement for de novo approval from the Government of AJK. Moreover, PPRA Rules 2004 were applicable since the feasibility studies and detailed engineering and design and tender documents were fully financed out of public funds. Besides, cost of the project worked out by CWE was higher by $344.32 million, as compared to cost estimations by Wapda. Therefore, the project must be offered through ICB.
PPIB, however, maintained that since the project is being implemented on Build, Own, Operate and Transfer (BOOT) mode in the private sector within the territorial jurisdiction of AJK, pursuant to the AJK Interim Constitution, 1974, the AJK Council had the exclusive competence, powers and jurisdiction to exercise' Executive Authority in relation to the subject of electricity.
Accordingly, the AJK Council conveyed its approval for the development of the project through PPIB in accordance with the terms of MoU. It was also intimated that Prime Minister of AJK, on March 3, 2011 conveyed to Prime Minister Yousaf Raza Gilani that in the supreme national interest the Government of AJK was issuing Letter of Support (LoS) to CWE, which had given firm commitment to invest $2.5 billion for development of 1100 mw project in the quickest possible time.
According to sources, the sponsor Ministry sought concurrence of the ECC to the decision of AJK Council for the development of the project through PPIB in accordance with the terms of the MoU signed between the Minister for Water and Power and CWE under policy for power generation 2002 and as per opinion given by the Ministry of Law and Justice.
After detailed discussion, the ECC endorsed the decision of the AJ&K Council for the development of the Kohala Hydropower Project through PPIB in accordance with the terms of the MoU signed between the Minister for Water and Power and CWE. Transparency International Pakistan says that the ECC has violated the Rules to award the project to CWE without tendering.
According to Transparency International Pakistan, the project comes under the ambit of PPRA Ordinance 2002 and Public Procurement Rules, 2004 on the following grounds: (i) that this project has been processed by Wapda and PPIB and more than Rs 3 billion has reportedly been spent by Wapda and PPIB from the public funds; (ii) that the project is being set up in AJK to supply electricity to Pakistan by Wapda; (iii) ECC which approved the cost and project is a Pakistani institution and if this is not a government of Pakistan project why Wapda, PPIB, Ministry of Law and, PPRA and ECC have been associated with the project since 2005; (iv) PPRA Ordinance 2002 and Public Procurement Rules 2004 under Rule No 3 apply to all procurements made by all procuring agencies of the Federal Government whether within or outside Pakistan, and this project is awarded by Wapda to be set up outside Pakistan; (v) PPRA Ordinance 2002 and Public Procurement Rules 2004 apply to Wapda that signed the MOU with China International Water and Electric Corporation (CWE); (vi) the Private Power Infrastructure Board (PPIB) has awarded feasibility study for this project to China International Water and Electric Corporation (CWE) on 15th January 2009; (vii) sovereign guarantees to Chinese Company are being provided by the Government of Pakistan ; and ( viii) the buyback guarantee is being provided by the Government of Pakistan GoP.